Unit 3.3.4 - Other considerations before trading internationally

Key Terms
1. Stakeholders
  1. All those who have an interest or stake in a particular business
  2. E.g. customers, shareholders, etc
2. Corporate Culture
  1. Set of important assumptions that are shared by people working in a particular business
  2. Influence the ways in which decisions are taken there
3. Corporate Social Responsibility (CSR)
  1. Taking decisions in a way that takes into account all stakeholders' interests
  2. E.g. Treating employees, customers and suppliers fairly, or avoiding polluting activities and contributing positively to lives in the community
4. Ethical decision making
  1. Following codes of practice that embody moral values
  2. The objective is to do the right thing, act with honesty/integrity and taking into consideration everyone's interests (affected by the decision)
5. Social/Cultural Differences
  1. Individual societies and groups within them may have a different way of life
    1. This will affect their patterns of consumption and the products they favour and also the way they do business with one another
6. Protectionism
  1. Government policies aimed at protecting the domestic economy from the effects of imports that might otherwise damage domestic industries and reduce employment
7. Trade Barriers
  1. Anything that slows or prevents free trade from occurring
    1. E.g. Tariffs and Quotas
8. Quotas
  1. Physical limits on the level of specific imports in any one year
Shareholder Model
1. Profit maximisation - main priority of managers
2. Everything managers do should be in the best interest of shareholders
3. If shareholders want short-run profit maximisation at the expense of long-term growth - it's the responsibility of managers to deliver
4. Managers are employed to manage, on behalf of shareholders
  1. Needs, desires and aspirations of other interest groups should not be prioritised over those of shareholders
Stakeholder Model
1. Taking into account interests of all stakeholders - as a priority
2. Benefits include; improved image perception by consumers (leading to increased sales & competitive advantage), improved retention & motivation of staff, closer relationships with suppliers (leading to a beteer service), improved public relations and a reduction in the disruption of commercial activities by pressure groups
CSR Policy
1. Desire to behave responsibly
2. Positive public image
3. Wanting to fit in with everybody else
4. Positive marketing ploy
5. Smokescreen to hide behind
Ethical Decision Making and Stakeholder Conflict
1. What to manufacture?
  1. Should businesses make controversial products?
  2. Some products attract dispute and criticism (E.g. Cigarettes)
2. Capital and Labour?
  1. Should a business use more capital?
  2. Trade-off between capital and labour, more capital means less labour and more unemployment
3. Pay and Working Conditions
  1. Should businesses improve pay and conditions?
  2. Trade-off between standards of pay/conditions and employee morale & productivity - weighed against increased costs
4. The Environment
  1. All businesses affect the environment in some way by their activities
  2. Trade-between controlling such problems as pollution and reducing costs
5. Where to manufacture?
  1. Should businesses stay within original country or move production overseas to reduce costs?
  2. Dyson moved to Malaysia in 2002 - took advantage of cheap labour but UK workers lost jobs
Most Profitable Companies
1. Nestle
2. Gazprom
3. Microsoft
4. Chevron
5. AT&T
Most Ethical Companies
1. IBM
2. intel
3. PepsiCo
4. Unilever
5. Cisco
Behaving Ethically
1. Drawbacks
  1. Labour costs increase due to fairer wages/conditions
  2. Changing methods of production/corporate culture may be expensive
  3. Unethical competitors - may have lower prices/costs
  4. Supplies/minerals ethically sourced - more expensive
  5. Minimising eco damage - increased costs
2. Advantages
  1. Favourable media attention
  2. Potentially profitable
  3. Improved relationships with suppliers (leads to better service)
  4. More motivated workforce - productivity
  5. Ethically produced products carry a premium price without damaging sales
  6. Improved public image - increased sales and brand loyalty
Marketing
1. Place
  1. Conventional avenues may not be available
2. Price
  1. May need to be lower
3. Promotion
  1. Has to appeal to local tastes/culture
4. Product
  1. May need to adapt to local needs
Social/Cultural Differences
1. Language
  1. Effective communication is vital
  2. Businesses need bilingual people who can advise them on how to avoid pitfalls (may be a factor in unfamiliar markets)
Joint Ventures
1. Disadvantages
  1. Partners may not be reliable/suitable
  2. Profits are shared
  3. Possible cultural clashes
  4. Management styles may clash
  5. Communication problems may arise
2. Advantages
  1. Spreading risk
  2. Gaining local knowledge/expertise
  3. Shared costs
  4. Helps avoid cultural/social clashes
  5. Can use existing supply chains/distribution networks
  6. May be a condition of entry into some markets
Tariffs and Quotas
1. Quotas make the supply curve vertical at the quota limit - causes price to rise and quantity demanded to decrease (depends on price elasticity of demand for the import)
Why create barriers to trade?
1. To stop cheap foreign imports from replacing domestic substitutes (leading to job losses & business closures)
2. To protect 'infant' industries
3. Helps to avoid a trade deficit
4. Useful source of tax revenue - help fund public expenditure
5. Disadvantages of Protectionism
  1. Reduces competition
    1. Leads to inefficiency & higher prices
  2. Causes a welfare loss (paying more for imports - less spending on other goods)
  3. Provokes retaliation

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Unit 3.3.4 - Other considerations before trading internationally

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